At some point,
you may question your decision to buy a home.
Considering what a hassle obtaining a mortgage
can be, why put yourself through all of that?
You could just continue renting a home. When
trying to decide between buying a home and
renting, you will have to ask yourself a few
important questions.
What is your
motive for wanting to buy a home?
Most experts
agree that buying a home primarily for
investment reasons is not a good idea. It may be
more worth your while to put that money in
investment securities. There are, however,
advantages to buying your own home: the mortgage
interest on your loan is tax deductible, and
your monthly payments will go towards building
equity in your property. In addition, you also
have the priceless satisfaction of knowing that
in the end, you will own your own home.
Example:
If you are a homeowner and have a gross annual
income of $40,000, and your monthly mortgage
payment is $1,000 on a 30 year mortgage, 80
percent of your payment will go towards interest
in the first few years of your loan. This
interest is tax deductible and if, for example,
you are in the 15 percent tax bracket, this can
amount to a savings of $375 in taxes when
compared to a standard deduction.
Can you
afford it?
Even if can
manage to make the monthly payments with the
income you make, it’s important to consider if
doing so will significantly take away from other
expenses. The primary reason that borrowers
default on their mortgages is that they end up
spreading themselves out too thin.
Is it worth
it?
If your
application loan is systematically being
rejected, or if you are being offered
astronomically high interest rates because your
credit is bad, then it might be smart to
continue renting and concentrate on paying off
your
debt and building up your credit record
again.
The middle-road.
For those who
remain unsure about whether to buy or rent,
there is also the option of renting a house or
condominium with an option to buy if you later
decide to. Such rent-to-own programs give buyers
time to save for a
down payment or to clean up a
credit history. Additionally, in times when real
estate values are rising quickly at a rate of 10
percent a year, it can be advantageous to the
buyer to choose this route because the purchase
price of the home is locked in at the time of
original rent-to-own contract.
Typically, a
portion of the monthly rent will be applied
towards the purchase price. The amount of rent
credited towards the purchase price can vary
between 10 and 100 percent. In most cases, a
non-refundable
down payment is required in case
the renter decides not to buy.
Mortgage Glossary3
